Industry News

Ofgem launches project to pave the way for cheaper off-peak electricity

Tariffs where consumers pay less for using electricity off-peak or when it is cheaper to produce, are one step closer.

The national roll-out of smart meters to homes is due to start in 2015. These meters will send actual consumption data directly to suppliers, meaning consumers will see an end to estimated bills. The meters will come with a display unit showing consumers the key information they need to better manage their energy consumption.

Smart meters also record consumption every half-hour, and with the customer’s agreement, the supplier can obtain these half-hourly readings. This opens the door to more advanced time-of-use tariffs where suppliers can charge customers less for electricity when it is cheaper. This could be, for example, at times when there is more renewable electricity available, or outside peak times.

To encourage the next generation of time-of-use tariffs, Ofgem will reform industry arrangements for working out how much electricity households use at different points throughout the day, and how much suppliers pay for that electricity. This will encourage suppliers to offer tariffs that cut charges for consumers using electricity when it is cheaper. Ofgem will now lead these reforms so that new industry charging arrangements are defined before the start of the national roll-out.

Rachel Fletcher, senior partner, markets, Ofgem, said: “Smart meters will help consumers to have much more control over when they use energy. They also make it far easier for consumers to reduce their bills if they use electricity outside peak hours, or at times when electricity is cheaper to produce.

“However, to make sure consumers get these benefits, we must reform industry charging arrangements which have been in force since the 1990s. This is so that more advanced time-of-use tariffs can be brought in. Taking these steps now means that we can make the energy market work even better for consumers, now that our reforms for a simpler, clearer, fairer market are in place.”

Secretary of State for Energy and Climate Change Ed Davey said, “I welcome this programme from Ofgem. Alongside the roll-out of smart metering, it will reform back-office electricity market processes that are vital to help deliver a more modern, competitive energy market for consumers.”